Economic Impact Of The Automobile Industry
In late 2015, The central bank believed the U.S. economy is strong and on the path to sustainable growth so the Federal Reserve should raise the interest rate from zero percent to 0.5 percent . The increased rate’s percent is a small one, but it will affect the market dynamics and millions of Americans, including investors, bankers, home buyers and manufacturers. (Figure 1-2)
Low interest rates have been a key contributor to the automotive industry’s growth and sale’s boost percentage, providing buyers with additional spending power to buy more vehicles or allowed them to make monthly payments on vehicles they otherwise would not have been able to afford. Based on 2015 U.S. Automotive Outlook report, (the percentage of leased vehicles among retail purchases has risen from 13 percent in 2009 to 26 percent in 2014, and the percentage of 72 month loans has grown from 22 percent to 32 percent during the same period). (Figure 1-3).
The increase in interest rates would undoubtedly have a negative impact on automotive industry. How that comes? The consumers’ ability to purchase new vehicles or leasing luxury vehicles’ models will decline. Consequently, consumers’ orientation will shift toward smaller, less expensive vehicles leasing and then recession in automotive industry as a whole.
2.1.3. Money supply and …show more content…
A high inflation rate erodes the purchasing power and creates uncertainty for estimating future costs. However, an moderate increase in the supply of money - with controlling over inflation rate - will result in: First, lowering interest rate, which mostly spurs investment and an incentive for borrowing more loans. Second, putting extra money in consumers’ hand, and thus stimulating spending. Finally, with more consumers spending businesses will respond to increase sales and increase production.
Both, money supply and inflation - with reasonable rates, are the cornerstone for automotive industry’s growth and productivity and vice versa.
The strength of the economy’s recovery has been seen in the number of job creation in the last three years. According to the Economic Report of the President “The pace of total job growth rose to 260,000 a month in 2014, up from 199,000 a month in 2013, as shown in Figure 1‑2. As recently as 2013, most forecasters expected that the unemployment rate would not fall to 5.6 percent until after 2017. The unemployment rate declined 1.1 percentage points during the 12 months of 2014, or almost an average of 0.1 percentage point a month, falling to 5.6 percent by year